Why a 3.6% Social Security COLA Is More Flat than Fizzy

More money, more problems? 

The Social Security Administration announced its 2027 cost-of-living adjustment on Wednesday, setting a 3.6% benefit boost that will raise the average monthly payment from $2,071 to $2,146, or by about $75 per month.

“A 3.6% COLA increase is both good news and bad news for beneficiaries,” said Martha Shedden, founder of the National Association of Registered Social Security Analysts. “It’s good news in the sense that beneficiaries will receive a larger monthly payment. It’s bad news because higher COLAs are generally a reflection of higher inflation.”

Most retirees would probably prefer lower inflation and a smaller COLA, sources told Retirement Upside. Still, they agreed, treading water is better than sinking. 

COLA Wars 

Data on average inflation from the third quarter is used each year to set the Social Security COLA. This year, energy costs proved to be the biggest factor behind rising prices in Q3, especially in August and September, per data from the Bureau of Labor Statistics: 

• The index for gasoline rose 9.1% in September alone, accounting for over half of the monthly all-items increase. 
• The broader energy index increased 5.2% over the month, following a 2.1% increase in August and a 1.5% decline in July. 

For context, the 3.8% COLA will be above the roughly 2.6% average adjustment over the past 20 years, but it’s well below the most recent high of 8.7% in 2023, when supply chain shocks caused by the pandemic caused sky-high inflation. 

“Seniors won’t see any changes to their benefit checks until January, but the inflation the COLA is supposed to account for has already occurred,” said Shannon Benton, executive director of the Senior Citizens League. “In years like 2026, when lots of inflation happens in the first half of the year, it means seniors have to endure elevated prices for months without any financial recourse.”

COLA in Context. The annual COLA gets the headlines, but advisors should pay attention to all the annual Social Security changes. These include the taxable wage base, earnings-test limits, maximum benefits, primary insurance amounts, Supplemental Social Security Insurance amounts and more.

For Medicare beneficiaries, Part B premiums can also absorb a portion of the COLA. In its latest annual report, the Medicare Board of Trustees projected the standard monthly premium for Part B will increase by $6.60, reaching $209.50 per month in 2027. The actual figure is expected to be published soon. 

“All these factors can affect planning decisions for workers and retirees alike,” Shedden said. “The number retirees really care about isn’t just the gross COLA. It’s how much of that increase ultimately remains in their pocket.”